TaxTMI 
TaxTMI 
2021 (12) TMI 1459
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.... assessee was jointly promoted by M/s Gangwal Group, M/s More Group and M/s UFM Group for setting up cement factory at State of Meghalaya having a capacity of 2040 TPD. In connection therewith, these three (3) promoter groups had infused capital into the assessee company across all the years through the aegis of their group bodies corporate and individuals. The said cement plant was finally commissioned in July 2016 and the commercial production commenced in FY 2016-17. Search u/s 132 of the Income Tax Act 1961 (herein after referred to as the Act) was conducted against the M/s Goldstone Group, on 12-12-2017 (AY 2018-19). Ordinarily, having regard to the date of search, the AO was within his jurisdiction to issue notices u/s 153A of the Act in respect of six assessment years preceding the assessment year of search i.e. in the present case search took place in AY 2018-19, so, ordinarily the AO was empowered u/s. 153A of the Act to reopen six preceding assessment years preceding the searched assessment year and those AY's were AYs 201213 to 2017-18.However, in this case, the AO further in exercise of powers conferred under fourth proviso to Section 153A of the Act, which was inserted....
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.... reopened in terms of fourth proviso to Section 153A of the Act. The AO overruled the objection through the order sheet noting dated 04.11.2019, and evasively refused to provide the same. In the same order sheet noting dated 04-11-2019, a detailed common notice was issued by the AO to the assessee, which has been extensively reproduced at Pages 4 to 9 of the assessment orders for all the years that has been reopened u/s. 153A of the Act. The questionnaire inter alia included details/information sought for, regarding the share capital raised by the assessee across all these years. Pursuant thereto, the assessee filed details of the share subscribers to show their respective identity, creditworthiness as well as the genuineness of the share subscriptions received from them. The AO thereafter made independent enquiries from the share subscriber's u/s 133(6) of the Act. It is noted by the AO in the assessment order that, all the notices were complied with and that statements of key persons/directors were also recorded by him. The AO thereafter issued a show cause notice (SCN) dated 27-12-2019 requiring the assessee to explain as to why the following amounts of share capital and premium....
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.... second proviso to section 153A of the Act (which fact is undisputed). According to him, in these unabated assessments, additions made by the AO u/s. 153A of the Act could have been made only if they were supported or backed-up by incriminating material found in the course of search, or otherwise these concluded assessments could not be disturbed. In support of this proposition, the Ld. CIT(A) relied on several decisions of the Hon'ble High Courts, viz., PCIT vs Kurule Paper Mills Pvt. Ltd. (380 ITR 571), PCIT vs Saumya Construction Pvt. Ltd. (387 ITR 529), Jai Steel (India) vs ACIT (259 ITR 281), CIT vs Kabul Chawla (380 ITR 573) and others. The Ld. CIT(A) thereafter examined the contents of GCL-HD-1, the image of which has been reproduced by him at Pages 144 to 145 of the First Appellate Order, and which according to the AO, constituted the purported 'incriminating material' found in the course of search. The Ld. CIT(A), after analyzing and examining the same, held that this document (GCL-HD-1) was a secretarial compliance report which was filed by the assessee with the Registrar of Companies along with Form MGT-7 (Annual Return) giving the shareholding pattern of the company. Ac....
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.... was found to be examined u/s 143(3) of the Act for AY 2017-18 by its own AO and findings of AO are not based on any evidence or material on record and are merely in the nature of surmises, suspicion and conjecture without appreciating the facts contained in the first proviso to Section 68 which is effective from AY 2013-14, clearly cast onus on the assessee, prove the source in the hand of investor - - - - - 3 Assessee's Grounds of Cross Objections Sl. No. Grounds 2011-12 2012-13 2013-14 2014-15 2015-16 2017-18 (i) Ld. CIT(A) should have held that conditions specified in fourth proviso to Section 153A(1) were not complied and notice dated 11.09.2019 issued u/s 153A along with order dated 30.12.2019 u/s 153A/143(3) were without jurisdiction and void ab initio. 1 - - - - - (ii) LdCIT(A) should have held that the provisions of Section 153D of the Act were not complied with and the order passed u/s 153A/143(3) is bad in law. 2 1 1 1 1 1 (iii) LdCIT(A) should have held that no interest can be charged u/s 234A of the Act. 3 2 2 2 2 5 (iv) Ld CIT(A) erred in rejectin....
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.... but under the erstwhile ITD Module, the impugned order could be held to be ab-inito-void? (G) Whether the addition/s made u/s 68 of the Act in AY 2017-18, if upheld, was eligible to be set off against current year's business loss of AY 2017-18 ? (H) Whether the addition/s made u/s 68 of the Act in AY 2017-18, if upheld, was taxable at normal tax rates or at the higher tax rate prescribed u/s 115BBE of the Act? (I) Whether the lower authorities had erred in not granting the benefit for set-off of seized cash by way of self-assessment tax in AY 2017-18? 8. We first proceed to answer the Question (A). (A) Whether the AO had validly assumed jurisdiction to issue notice u/s 153A of the Act upon the assessee for AY 2011-12 in terms of fourth proviso to Section 153A of the Act read with Explanation 2 of the Act ? [Ground No. 1 of Cross Objection of Assessee for AY 2011-12] 8.1 This ground is pertaining to AY 2011-12 i.e., the seventh assessment year preceding the searched assessment year. In this ground, the assessee has challenged the usurpation of jurisdiction by the AO u/s 153A of the Act without first satisfying the essential condition precedent....
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....ating evidence/material which could reveal that income valued Rs. 50 lakhs or more represented in form of 'asset' had escaped assessment. Only if, the AO had in his possession this jurisdictional fact i.e. undisclosed/unaccounted 'asset' valued Rs. 50 lakhs or more, which was discovered during search, relating to seventh to tenth assessment years, that he can rightly invoke the jurisdiction to re-open the said assessment years, or otherwise the AO cannot reopen the assessment. [Please note:- The contention of Ld. A.R. Shri Dudhwewala in respect of jurisdictional fact will be dealt in length (infra)].Shri Dudhwewela further argued that, it is implied from a reading of fourth proviso to section 153A of the Act is that, when the Parliament in its wisdom has prescribed the existence/discovery of undisclosed Asset valued Rs.50 lakhs or more, as condition precedent for invoking jurisdiction, the Parliament has excluded discovery of other income escaping assessment not represented in the form of 'Asset' to assume jurisdiction under fourth proviso to Section 153A of the Act as well as even the Asset valued less than Rs 50 lakhs. He gave an illustration to make us understand as to what he w....
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..../unaccounted 'asset', which according to him, further fortifies that the AO did not had in his possession the jurisdictional fact when he issued notice u/s 153A on 11.09.2019 (refer page 106 of PB) for AY 2011-12, either at the time of initiation or upon completion of the proceedings. So he wants us to quash the assessment order framed by the AO for AY 2011-12, being without any jurisdiction. 8.2 Per contra, the Ld. DR Shri Amit Kumar Pandey vehemently opposed the submission made by the Ld. A.R. of the assessee and contended that there was no requirement in law for the AO to have pointed out the 'asset' to the assessee for which the relevant assessment year 2011-12being re-assessed u/s 153A read with fourth proviso to Section 153A of the Act. According to him, the phrase "income represented in the form of asset" was vast enough to encompass addition on account of unexplained cash credits which was added by the AO. According to him therefore, the AO rightly assumed jurisdiction u/s 153A of the Act for AY 2011-12 when he had the seized material in his possession and so, we should not disturb the validity of the order. 8.3. In his rejoinder, the Ld. AR Shri Dudhwewala urged that....
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....is present case i.e. 12-12-2017, the AO was well within his jurisdiction to issue notices u/s 153Aof the Act in respect of six (6) assessment years preceding the assessment year of search, which in the present case took place in AY 2018-19. Therefore, in terms thereof, the AO was competent to issue notices u/s 153A of the Act for the AYs 2012-13 to 2017-18. Now before us by raising Ground No.1/CO No. 1 (Reframed Ground "A" refer supra para 7), the assessee has challenged the validity of assumption of jurisdiction by the AO u/s 153A of the Act and the issuance of notice u/s 153A of the Act for AY 2011-12, which is the seventh (7) assessment year preceding the assessment year of search. To adjudicate this legal issue, we have to go through the fourth proviso of Section 153A of the Act which was inserted by the Finance Act, 2017 with effect from 01.04.2017, enabling an Assessing Officer (AO) of a searched person to issue notices u/s 153A of the Act for 'relevant assessment year or years' in terms of Explanation 1 of the fourth proviso to Section 153A of the Act i.e. assessment years beyond the six (6) assessment years till tenth (10) assessment year preceding the searched assessment y....
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.... the AO to issue notice u/s. 153A of the Act for the assessment or reassessment of the 7th - 10th AY's unless he has in his possession evidence/material which revealed that income represented in the form of asset valued Rs. 50 lakhs or more has escaped assessment. So, the AO, in order to assume jurisdiction for the extended period (i.e. 7th to 10th AY preceding the searched year) should have in his possession income represented in the form of 'asset' valued Rs. 50 Lakhs or more which has escaped assessment, which 'fact' according to Ld. A.R. Shri Dudhwewala is the 'jurisdictional fact', which if present/or in possession of AO will only enable the AO to assume jurisdiction u/s. 153A of the Act to issue notice for these extended AYs'. According to Shri Dudhwewala, the jurisdictional fact in this case for AY 201112 (7th AY preceding to searched year) is the existence of fact relating to the undisclosed 'asset' valued Rs.50 lakh or more that has been discovered in the search qua the assessee qua the AY in question i.e. AY 2011-12. According to him, in the present case, not only when the AO issued notice u/s 153A for AY 2011-12, did he not have in his possession this essential jurisdict....
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....ion in accordance with law. Once an authority has jurisdiction in the matter on existence of 'jurisdictional fact', it can decide the 'fact in issue' or 'adjudicatory fact'. A wrong decision on 'fact in issue' or on 'adjudicatory fact' would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present. 8.7. In the case of Raja Anand Brahma Shah v. State of U.P. &Ors., AIR 1967 SC 1081 : (1967) 1 SCR 362, the Hon'ble Supreme Court had an occasion to look into the jurisdiction of the District Collector to acquire land under sub-section (1) of Section 17 of the Land Acquisition Act, 1894 which enabled the State Government to empower the District Collector to take possession of 'any waste or arable land' needed for public purpose even in absence of award. The possession of the land belonged to the appellant had been taken away in the purported exercise of power under Section 17(1) of the Act. The appellant objected against the action inter alia contending that the land was mainly used for ploughing and for raising crops and was not 'waste land', unfit for cultivation or hab....
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....of working classes. But it was expressly provided that no land could be acquired which at the date of compulsory purchase formed part of park, garden or pleasure-ground. An order of compulsory purchase was made which was challenged by the owner contending that the land was part of park. The Minister directed public enquiry and on the basis of the report submitted, confirmed the order. Interfering with the finding of the Minister and setting aside the order, the Court of Appeal stated; "The first and the most important matter to bear in mind is that the jurisdiction to make the order is dependent on a finding of fact; for, unless the land can be held not to be part of a park or not to be required for amenity or convenience, there is no jurisdiction in the borough council to make, or in the Minister to confirm, the order. In such a case it seems almost selfevident that the Court which has to consider whether there is jurisdiction to make or confirm the order must be entitled to review the vital finding on which the existence of the jurisdiction relied upon depends. If this were not so, the right to apply to the Court would be illusory."[See also Rex v. Shoredich Assessment Committee;....
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....ase and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter upon the existence of 'jurisdictional fact', then it can decide the 'fact in issue' or 'adjudicatory fact'. A wrong decision on 'fact in issue' or on 'adjudicatory fact' would not make the decision of the authority without jurisdiction or vulnerable, provided essential or fundamental fact as to existence of jurisdiction is present. Thus, we understand that jurisdiction fact is the fact which is required to exist, as insisted by the Parliament/Legislature, for a quasi judicial/ authority to exercise jurisdiction over a particular matter. So in this present case, we have to examine whether the Parliament has specified in the fourth proviso to Section 153A of the Act any such facts which can be termed as jurisdictional fact. On a reading of the fourth proviso to Section 153A of the Act along with Explanation 2 to it which defines 'Asset', we find considerable merit in the contention of Shri Dudhwewala that in order to invoke jurisdiction u/s 153A of the Act for the seventh to tenth AY preceding the searched year, the AO should have in h....
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....ng the searched assessment year. Since the Parliament has used the expression 'income in the form of asset' and the definition of asset has been spelled out in the fourth proviso, this itself necessarily implies that the liability/items falling in the left side of the Balance Sheet stands excluded. For this view of ours, we rely on the legal Maxim for interpretation "Expressio Unius Est Exlcusio Alterius" which principle states that, express mention of one is the exclusion of other and this maxim has been accepted by the Hon'ble Supreme Court in GVK Industries Ltd. Vs. ITO [197 Taxman 337] (Constitution bench of 5 Supreme Court Judges). By express mention of 'Assets' and definition given to it specifically, it is implied that the Parliament silently excluded the items of 'revenue', 'expenditure' & 'liabilities' from its jurisdictional fact for invoking/assumption/usurpation of jurisdiction u/s. 153A of the Act for the seventh to tenth assessment year preceding the searched assessment year. 8.12 It is a rudimentary accounting concept, that "debit" denotes "asset" and "credit" denotes "liability". An asset represents an economic resource, either immovable or movable, having value,....
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.... bank account' and 'asset' are to be understood in their cognate sense, as it takes their colour from each other, i.e., the more general is restricted to a sense analogous to the less general. Hence, the term 'deposits in bank account' denotes discovery of an 'asset' in the form undisclosed bank deposits, say fixed deposit bank a/c, savings deposit bank a/c, foreign deposit bank a/c etc. which is found to have escaped assessment in the 7th-10th AY preceding the search. It does not suggest or include any or all credits in bank accounts, which is disclosed and forms part of the regular books of accounts. To say, if any credits in a regular bank account, like sale proceeds/ loan / share capital etc. is found to be unexplained, then it may be a case of discovery of undisclosed 'income' / 'cash credit' but it does not suggest discovery of an undisclosed 'asset' by the Revenue so as to bring it within the teeth of the fourth proviso to Section 153A of the Act for invoking jurisdiction u/s 153A for the extended period. 8.15 Hence, from the above discussion, it is thus clear that Section 153A of the Act can be invoked only if the AO comes to a positive conclusion that he has in his poss....
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....are capital and premium for issue of shares to them. The sums so received are further invested by the assessee company either in fixed assets or extended as loans and advances or invested in shares further. It is explained to the A/R that this is a matter of investigation and assessment, that is why the case of the assessee for AY 2011-12 has been covered u/s 15A so that this issue can be assessed in the light of the search and seizure action conducted on the assessee company on 12/12/2017 and the documents and materials seized therein. The A/R is requested to furnish return of income for AY 2011-12 electronically as called for u/s 153A without further delay.(emphasis supplied) 8.17. Conjoint reading of the above order sheet noting with the objection raised by the assessee before the AO, shows that the assessee had specifically challenged the usurpation of jurisdiction by the AO under the fourth proviso to Section 153A of the Act and also requested him to spell out the details of the undisclosed/unaccounted "asset" found from the books of accounts/documents seized in the course of search, for which the assessment for AY 2011-12 was being re-opened. The AO however not only turned....
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....by the AO while making the order-sheet entry dated 04.11.2019 shows that, he had not recorded his satisfaction prior to issuance of notice dated 11.09.2019 in terms of the fourth proviso to Section 153A of the Act, but did so only subsequent to reopening of the assessment on 04.11.2019. His own admission in the noting sheet reveals that he has recorded satisfaction only on 04.11.2019 to cover the case of assessee in respect of AY 2011-12 on the strength of the seized material. From this assertion/averment/admission, it is clear that AO did not have in his possession the jurisdictional fact [on or prior to 11.09.2019] to invoke and issue notice u/s. 153A of the Act. Here, one should bear in mind that the fourth proviso was inserted by the Parliament w.e.f. 1.04.2017 by Finance Act, 2017, thereby extending the jurisdiction of the AO to assess/re-assess beyond six AY's to ten AY preceding the searched year. And as discussed at para 8.5, the fourth proviso clearly bars the AO to issue notice for the extended period (7th - 10th AY) unless the AO is in possession of the jurisdictional fact of undisclosed asset valued Rs. 50 lakh or more qua the assessee qua the extended assessment year. ....
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.... satisfied, the AO does not get the authority of law to invoke the jurisdiction u/s 153A for 7th to 10th AY. For this, we rely upon the dictum of the Privy Council in Nazir Ahmed Vs. King Emperor AIR 1936 PC 253(which has since been accepted and later followed by Hon'ble Supreme Court), that when a statute requires a thing to be done in a particular manner, it must be done in that manner or not at all. As discussed at Para 8.5 (supra), the language of the fourth proviso to section 153A of the Act show that issuance of notice can be resorted to by the AO only after he is in possession of the jurisdictional fact, which is found to be absent in the present case. Therefore according to us, the AO only after having in his possession the jurisdictional fact could have assumed jurisdiction and issued notice u/s. 153A of the Act or else he could not have issued notice, as done in this case. For the reasons elaborately discussed by us in the foregoing, we thus hold that the notice u/s. 153A dated 11.09.2019 was issued by the AO without authority of law and without satisfying the essential jurisdictional fact, and hence the issuance of notice u/s. 153A is held to be bad in law. 8.19. Even....
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....ts as discussed (supra), and for other defects and contention noted (infra), we find merit in the submission of Shri Dudhwewala that, the notice u/s 153A for AY 2011-12 had been issued by the AO in an arbitrary and casual manner, without first satisfying himself that he was in possession of incriminating material which revealed that income represented in form of asset had escaped assessment for AY 2011-12 which was the essential jurisdictional fact found to be absent in this case. In our considered view therefore, the AO's failure to do so, rendered the very act of usurpation of jurisdiction and issuance of notice dated 11.09.2019 under the fourth proviso to Section 153A of the Act for AY 2011-12 to be null in the eyes of law. 8.20. Thus according to us, the pre-requisite condition for conferment of jurisdiction under section 153A for the assessment of AY's falling from seventh (7th) to tenth (10th) assessment years preceding the searched assessment year being the jurisdictional fact in this case is absent and the AO without fulfilling this essential jurisdictional fact erroneously invoked jurisdiction u/s 153A of the Act for AY 2011-12, which is a serious flaw and a jurisdictio....
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....ake addition/s on other items (viz. liabilities like credit entry etc.) The reason is simple, because in such a scenario, it bellies the claim of the AO in issuing notice u/s 153A of the Act, that he is in possession of the jurisdictional fact i.e. undisclosed asset valued Rs. 50 lakhs or more has escaped assessment, which constitutes the key to open the lock and then re-assess the income of the assessee for the 7th to 10th AY. It is therefore incumbent upon the AO to show that the key used for opening the lock for the concluded 7th to 10th AY is the most appropriate key to unlock and thereby reopen the proceedings for bringing to charge any other items of escaped/unexplained income unearthed in the course of search. However in a case where, either the assessee demonstrates that the key used by the AO for reopening the assessment is either incorrect or where the AO himself abandons the jurisdictional fact in the course of assessment proceedings, then as a corollary, it has to be held that the key used by the AO for opening the lock was incorrect and thereby the lock placed earlier on the concluded assessment remained unopened and therefore the AO could not enter upon the arena of r....
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....are capital, which is in the nature of 'liability' could not have been made by AO, unless he first made an addition of undisclosed 'asset' valued at Rs. 50 Lakhs or more. So in this case, as there was no addition made by AO on account of undisclosed asset, we can safely infer that there was no jurisdictional fact in the AO's hand or in his possession when he assumed jurisdiction u/s 153A for AY 2011-12 in the first place itself. As, the very usurpation of jurisdiction u/s. 153A of the Act is found to be bad in law for want of jurisdiction, the AO was precluded from making any other addition in the assessment for AY 2011-12. Hence, the AO's action of making addition u/s 68 of the Act in the relevant AY 2011-12 is held to be unsustainable for want of jurisdiction and is therefore is quashed. The assessee thus succeeds on this ground raised in the cross objections and the same is allowed. 9. Now we proceed to answer Question (B). (B) Whether in absence of any incriminating material found in the course of search at the premises of the assessee, the additions/disallowances made in the assessments of the assessee, which were unabated/ non-pending on the date of search, could be hel....
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....to unabated assessments, which were not pending on the date of search, there is an embargo on the powers of the AO. In case of unabated assessments, the AO can re-assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Considering these aspects the Hon'ble Delhi High Court in the case CIT vs Kabul Chawla reported in 380 ITR 573 held as under:- "37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the Ld AOs as a fresh exercise. The Ld AO will exercise normal assessment powers in respect of the six years previo....
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....ons in the cases of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) ; CIT vs Chetan Das Lachman Das reported in (2012) 211 Taxman 61 (Del HC) ; MadugulaVenu vs DIT reported in (2013) 215 Taxman 298 (Del HC) ; Canara Housing Development Co. vs DCIT reported in (2014) 49 taxmann.com 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (NhavaSheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). We also find that Revenue's SLP against the decision of the Hon'ble Delhi High Court in the case of Kabul Chawla (Supra) was dismissed by the Hon'ble Apex Court which is reported in 380 ITR (St.) 4 (SC). 9.3 The Hon'ble Delhi High Court in the case of Pr.CIT. Vs. Kurele Paper Mills (P) Ltd. (280 ITR 571) at Page 572held as follows:- "1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) i....
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....is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revive....
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....s, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act. ** ** ** 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of an the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallow....
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....d prior to the date of search, and therefore the assessments for these years did not abate. It was accordingly held that the AO could have made addition only if any incriminating material was found in the course of search. Having regard to the facts of the case, the Tribunal upheld the order of the CIT(A) deleting the additions made towards share application monies in unabated assessments of AYs 2006-07 & 2007-08, for want of any corroborative incriminating material found in the course of search. 9.6 We find that similar view was also expressed by the Guwahati Bench of this Tribunal in another case of DCIT Vs SMS Smelters Pvt Ltd (ITA No.91, 69, 76 & 77/Gau/17) dated 06.09.2019 wherein it held as under: "7. Next comes Revenue's appeal ITA No.69/Gau/2017 for assessment year 2007-08. The CIT(A)'s order under challenge has deleted share capitals share premium and share application money addition of Rs.6, 69, 71, 870/-, 11, 95, 78, 050/- and Rs.7, 24, 50, 080/-; respectively vide following detailed discussion:- "5.2 I have considered the submissions made by the appellant before me. I have also perused the assessment order as well as the remand report sent by the As....
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....le Paper Mills (P) Ltd. (2016) 380 I.T.R. 571 (Delhi) (SLP filed by the Department against this judgment dismissed (2016) 380 I.T.R. St.64) It is further submitted by the appellant that no incriminating document/material relating to the share capital/share premium was found and/or seized in the case of the appellant. The Assessing Officer has neither referred to nor relied upon any such document while making the assessment. 5.4 As far as merits of the case is concerned, the appellant has submitted the following documents with a prayer under Rule 46A of the Income Tax Rules 1962 for admission of these documents as additional evidences: (i) Chart showing name and address of the shareholders/applicants, No. of shares applied for/allotted face value of shares, premium paid, mode of payment, PAN No., CIN Nos. of the applicant companies. (ii) Copies of the appellants statements with the following banks showing the receipt of share capital/application money: (a) HDFC Bank, H.B. Road, Guwahati (b) HDFC Bank, Guwahati (c) Standard Chartered Bank, Guwahati (iii) Copies of Memorandum & Articles of Association and audited balance sheet in respect of corporate shareholders/app....
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....l found during the course of search and not otherwise. In view of what has been discussed above, I am of the considered view that the additions of Rs.6, 69, 71, 870/-, Rs.11, 95, 78, 050/- and Rs.7, 24, 50, 080/- made on account of share capital, share premium and share application respectively are not sustainable in the eyes of law. Hence, these are deleted. 5.10 Even on the merits also, I find that the addition made by the Assessing Officer is not sustainable. 5.11 I find that the appellant had submitted the details of share capital and share premium in course of the assessment proceedings vide its letter dated 18.02.2015. This fact has been noted by the Assessing Officer in para 11(a) of his order. The appellant could not submit the documents in support of share capital/premium as these were not readily traceable at the time of assessment proceedings. The appellant has further contended that it was not given proper and meaningful opportunity of being heard to produce the documents in support of share capital/premium. The appellant has submitted before me the following details/documents in support of the share capital /premium: - (i) Chart showing name & address....
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....amdhenuStel& Alloys Ltd. (2014) 361 ITR 220 (Delhi) (iii) C.I.T. V/s. Lovely Exports Pvt. Ltd. (2009) 319 ITR (St.) 5 (S.C.) (iv) C.I.T. V/s. Sameer Bio-Tech Pvt. Ltd. (2010) 325 ITR 294 (Delhi) (v) C.I.T. V/s. Five Vision Promoters Pvt. Ltd. (2016) 380 ITR 289 (Delhi) (vi) C.I.T. V/s. Dwarkadhish Investment Pvt. Ltd. (2011) 330 ITR 298 (Delhi) (vii) C.I.T. V/s. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) In view of the above also, the addition made in respect of share capital and share premium cannot be sustained. This ground of appeal is, therefore, allowed." 8. It is therefore clear that the CIT(A) has quashed the impugned assessment(s) on the ground that the department had not found or seized any incriminating material against the assessee during the course of search in issue. Various high court(s) in CIT vs Kabul Chawla (2016) 380 ITR 573 (del), PCIT vs. M/s Salasar Stock Broking Ltd in GA No. 1929/2016 ITAT No.264 of 2016 dated 24.08.2016 (Cal), PCIT vs Dipak J Panchal (2017) 397 ITR 153 (Guj) support the assessee's case qua the instant legal aspect. Mr. Singh has quoted E.N. Gopakumar vs. CIT (2017) ....
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....or our consideration is, whether the contents of the seized document GCL-HD-1, referred to by the AO, was 'incriminating' in nature or not. Before we proceed to examine the contents of the seized document GCLHD-1, it is first relevant to understand as to the meaning of the expression "incriminating material" or evidence. There can be several forms of incriminating material or evidence. In order to constitute an incriminating material or evidence, it is necessary for the AO to establish that the information, document or material, whether tangible or intangible, is of such nature, which incriminates or militates against the person from whom it is found. Some common forms of incriminating material, inter alia, are for instance, where the search action u/s. 132 of the Act reveals information (oral or documentary) that the assets found from the possession of the assessee in form of land, building, jewellery, deposits or other valuable assets etc. do not corroborate with his returned income (which includes earlier AY's return also) and/or there is a material difference in the actual valuation of such assets and the value declared in the books of accounts. Further, incriminating evide....
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....ngs on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs and rather that can be the starting point of inquiry to un-earth further material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that every seized material or document found in the course of search as incriminating in nature qua the assessee justifying the additions in unabated assessments. In other words, any and every seized material, which comes in AO's possession cannot be construed as 'incriminating material' straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as 'incriminating material' unless the AO establishes nexus or connect of such notings with unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent....
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....Even on this score, no interference is warranted with the impugned order of the CIT (A). 9.11 We may, in this regard, gainfully refer to the decision of the Kolkata Bench of this Tribunal in the case of Daffodil VincomPvt Ltd Vs DCIT in ITA (SS) Nos. 95 & 96/Kol/2018 dated 28.06.2019. In the decided case the AO had added the share capital raised by the assessee in AYs 2011-12 & 2012-13 by way of unexplained cash credit u/s 68 of the Act in the assessments framed u/s 153A of the Act. Before the Tribunal the assessee contended that the addition u/s 68 was not based on any incriminating material found in the course of search and therefore the additions made in unabated assessments of AYs 2011-12 & 2012-13 were unsustainable. Per contra, the Revenue contended that the additions were made with reference to documents ID Marked SFA/01 and SFA/02 which were seized in the course of search and hence urged that the AO had rightly made the impugned addition. Upon examining the contents of the seized material referred to by the Revenue, this Tribunal noted that it comprised of bank account statements which formed part of the regular books of the assessee and these accounts were disclosed to ....
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.... assessee company, by any stretch of imagination, cannot be considered as incriminating material. It is also not the case of the Revenue that the bank accounts were unearthed during the search operation. On these facts, the ratio laid down by the Hon'ble High Court of Delhi in the case of Kabul Chawla [supra], squarely apply wherein the Hon'ble High Court of Delhi held as under: ........ Respectfully following the ratio laid down by the Hon'ble High Court of Delhi and Hon'ble Supreme Court [supra], we are of the considered view that the assessment framed u/s 153A of the Act for both the Assessment Years under appeal deserves to be set aside. We, accordingly direct the Assessing Officer to delete the impugned additions from both the Assessment Years." 9.13 In view of the above, let us now examine the only material referred to by the AO in the order impugned to justify the addition i.e. GCL-HD-1.The image of this material is extracted below: 9.14 We note that the Ld. CIT(A) had examined in detail the contents of the above document and concluded that this document was not an incriminating document and that the it was a shareholding pattern of th....
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....d material identified as GCL-HD-1 was not incriminating at all but instead it was a regular business document duly recorded in the books of accounts as well as the corporate records and information contained therein was also available in the public office of the ROC. In order to bring home its contentions, the Appellant has also referred to rationes of certain judicial pronouncements which have been considered and would be referred at relevant places in this order. Be that as it may be, in this case, a shareholding pattern of the Appellant company was purportedly discovered during the course of search and the AO had treated the aforesaid share holding pattern as an incriminating document. On the other hand, the Appellant has submitted that the aforesaid shareholding pattern of the Appellant is not an incriminating document. In this regard, it is noted that the word "incriminating" does not find mention in Section 132 or in Section 153A or even in Section 153C of the Act. Nor has the said word been defined in the Act. Further, as per Section 153A of the Act, the jurisdiction of the AO was clearly to assess the true and correct "total income" of the Appellant, and, ....
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....y go on to prove that the purported details were duly verifiable from the books of accounts of the Appellant as well as other records and documents and registers maintained by the Appellant in accordance with the various provisions of the Companies Act, 1956/Companies Act 2013. It is needless to state that in-case the purported shareholding pattern would have been incriminating or would not have been in consonance with the records and books of accounts of the Appellant, then, In that eventuality, a competent Company Secretary would not have risked his/her career by digitally certifying the aforesaid shareholding pattern, coined by the AO as an "incriminating" material. It is noted that the material referred by the AO as "incriminating material" is not incriminating in nature as it is rather a declaration of the facts pertaining to the Appellant. The "shareholding pattern" merely contains the details of the persons who are holding the shares of the company. It is further noted, from the "shareholding pattern" alleged by the AO as "incriminating", that the aforesaid "shareholding pattern" indeed refers to the share capital of the Appellant organized by the respective groups ....
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....nt with respect to his observation regarding the purported shareholding pattern and the relevant observation as contained in the show-cause, as aforesaid, is being reproduced hereunder: "In the electronic seized material marked as GCL-HD-1, it is seen that the capital in the company Goldstone Cements Ltd has been brought in by three major promoter groups, i.e., "UFM Group" headed by Sh. Mahabir Prasad Jain (Silchar), "More Group" headed by Sh. Prakash Kumar More and thirdly, Sh. Mahavir Prasad Jain of Guwahati. However, these individuals have not brought in all the capital in their own names but through a number of shell companies, The mention of group-wise share capital and share premium introduction into the assessee company is itself incriminating material that money was routed through multiple shell companies and invested into the assessee company." The aforesaid show-cause notice was fixed for final hearing / opportunity on 28/12/2019 at 11:00 am. Notwithstanding the fact that the time permitted to the Appellant to respond was too short, it is noted that in this case the relevant assessment folders were also perused and it is evident that the AO had not condu....
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....essment did not abate, when the search was conducted on 22-12-2017. The assessee thus succeeds on Question (B) as well. Accordingly Ground No. 3 of the Revenue's appeal for AYs 2011-12 to 2015-16 thus stands dismissed. 10. Now we proceed to adjudicate Question (C). (C) Whether the Joint Commissioner of Income-tax, Guwahati had validly granted approval u/s 153D of the Act and therefore whether the consequent order passed u/s 153A/143(3) was sustainable in law or not ? Ground No. 2 of Cross Objection for AY 2011-12 Ground No.1 of Cross Objection for AY 2012-13 Ground No.1 of Cross Objection for AY 2013-14 Ground No.1 of Cross Objection for AY 2014-15 Ground No.1 of Cross Objection for AY 2015-16 Ground No.1 of Cross Objection for AY 2017-18 10.1 In this ground, the assessee has challenged the validity of the assessments framed u/s 153A/143(3) of the Act for AYs 2011-12 to 2015-16 & 2017-18 on the ground that the approval u/s 153D of the Act was granted the Ld. JCIT/Addl. CIT in a casual and mechanical manner, which according to the assessee, rendered all the orders impugned before us to be a nullity. 10.2 It is noted that, the AO had issued a detailed qu....
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....ons set out above, we are not inclined to return our findings with regard to this legal issue raised in the cross objections as the same has now become academic in nature. So this issue is left open without our finding on it. Accordingly, Ground No. 2 of all the cross objections are dismissed as infructuous. 11. Now we proceed to decide the issue (D). (D) Whether the assessee had discharged its onus of establishing the identity and creditworthiness of the share subscribers and substantiating genuineness of the transactions and therefore whether the additions made u/s 68 of the Act on account of share application monies received by the appellant was tenable on facts and in law ? Ground No. 1 & 2 of Revenue's appeal for AY 2011-12 Ground No. 1 & 2 of Revenue's appeal for AY 2012-13 Ground No. 1 & 2 of Revenue's appeal for AY 2013-14 Ground No. 1 & 2 of Revenue's appeal for AY 2014-15 Ground No. 1 & 2 of Revenue's appeal for AY 2015-16 Ground No. 1, 2 & 3 of Revenue's appeal for AY 2017-18 11.1 It is noted that the reasoning/findings recorded by the AO in the orders for AYs 2011-12 to 2015-16 & 2017-18 for making addition/s u/s 68 of the Act is verbatim same....
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....d valid PAN and had sufficient own surplus funds and therefore, their identity & creditworthiness stood substantiated. He also showed that each of the shareholder/share applicants had provided the details of their respective sources of funds in the manner as desired by the AO, and therefore it could not be said that the proviso to Section 68 remained un-satisfied. He further submitted all the shareholders belonged to the same promoter group, who had invested in the capital of the assessee across several year/s and therefore the genuineness of the transactions and rationale for making investment also stood proved. He also furnished a summary chart giving the details of funds infused by these shareholders across several years/s to show that the AO himself had accepted the identity and creditworthiness of these same shareholders and the genuineness of the funds received from them in other years and/or partially accepted the genuineness of share capital received in the same year. Taking us through the relevant supporting documents, he urged that, when on same set of facts & circumstances, the AO had accepted these shareholders and their source of funds to be genuine in preceding/subseq....
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.... the facts pertaining to each year, it is first relevant to understand the provision of Section 68 of the Act under which, the addition has been made by the AO. The said provision reads as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer a....
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....es and finds fault with the evidence submitted by the assessee, then the onus again shifts upon the assessee to rebut such contrary evidences. 11.9 The next aspect that is to be considered in this case is regarding the proviso to Section 68 of the Act, which was inserted by the Finance Act, 2012 putting further burden upon the assessees to substantiate the "source of source" of funds. We note that the proviso to Section 68 of the Act was inserted by the Finance Act, 2012 and it was made effective from 01-04-2013 i.e. AY 2013-14 and onwards. For this, reference may be made to the Memorandum as well as the Notes to Clauses of the Finance Bill, 2012 which makes explicitly clear that the Parliament had introduced the proviso to Section 68 of the Act prospectively and the same was made applicable only from AY 2013-14 and onwards. Useful reference in this regard may also be made to the judgment of the Full Bench of the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Limited (367 ITR 466) where the Hon'ble Supreme Court categorically held that any legislation which imposes new obligation or new duties or a new levy shall have to be necessarily treated as prospective i....
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....holders in AYs 2011-12& 2012-13 and to that extent, the AO's reasoning justifying the addition/s u/s 68 of the Act in these two AYs for want of explanation regarding "source of source" of funds is held to be erroneous. 11.12 As regards AYs 2013-14 to 2015-16 & 2017-18, we note that even though the Parliament has inserted the proviso in Section 68 by the Finance Act 2012 with effect from 01-04-2013, it should be borne in mind that, there is no change or amendment in the substantive provision of Section 68 of the Act in terms of which, if any sum is found by the AO to have been credited in the books of an assessee in the relevant financial year, then when called upon by him (AO) to explain the nature and source of the credit; and pursuant to which if the assessee fails to explain to the satisfaction of AO the nature and source of the credit, then the AO may treat the credit as income chargeable to tax. In other words, if the assessee is able to explain the nature and source of the credit to the satisfaction of AO, then the AO cannot use this provision to charge the credit appearing in the books of the assessee as income for the purpose of taxation under the Act. It is a settled po....
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.... AO to explain the nature and source of the credit entries for the respective AYs, has discharged its burden by furnishing the necessary details inter alia including the name, PAN, address of the share subscribers, details of share application monies received, shares allotted along with bank statements evidencing that all payments were received through banking channel. After going through the details submitted the AO had made verification/enquiries u/s 133(6) of the Act from the shareholders, who in response had filed copies of their Income-tax Acknowledgments, financial statements, bank statements, explanation regarding source of their funds, copies of assessment orders etc. in support of their identity, creditworthiness and genuineness of these transactions. Thus, the inference that flows from the aforesaid facts is that the initial burden imposed under section 68 of the Act stood discharged. The details filed by the assessee were cross verified by the AO from the shareholder and no infirmity was pointed out in the same, except making a bald statement that the "source of source" of funds of the application monies was not properly explained. Having perused the orders impugned befo....
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....the identity & creditworthiness of same shareholder and also the genuineness of the transactions in the subsequent years, the action of the AO in disputing the genuineness of the transaction with the same shareholder, that too partly, in the relevant AYs 2011-12 & 2012-13 is held to be conspicuously perverse. (ii) We further note that at pages 365 - 609 of the paper book, the details of M/s. Hari Trafin Pvt. Ltd. are set out. This company is a registered Non-Banking Financial Company (NBFC) with the Reserve Bank of India (RBI) having CIN: U67120WB1995PTC068649. The AO had issued notice u/s 133(6) dated 27.11.2019 upon this shareholder requiring it to provide the following details of the shares subscribed in the assessee in the FYs 2008-09, 2010-11, 2011-12, 2013-14, 2014-15 & 2016-17: With regard to the shares subscribed above, please furnish the following information/documents: 1. Details of sources of funds used to make the share application. 2. Dates of transfer of share application money with regard to each share allotment separately. 3. Supporting bank account statements for all your bank accounts, audited accounts including balance....
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.... proper banking channels. Although we note that there was no obligation for the assessee to discharge the source of source of funds in AYs 2011-12 & 2012-13, but it is noted that the shareholder had provided the explanation regarding the source of source of funds received by the assessee, in the exact manner as sought for by the AO in the notice u/s 133(6) of the Act, which is available at Page 414& 442 of the Paper book. It is noted from the explanation provided that the source of funds of the shareholder was primarily share application monies received by this company and/or loans received earlier, details of which along with name, PAN & address are found to be set out in Pages 414 & 442of the paper-book. Sri Dudhwewala has rightly pointed out that the AO did not doubt the 'source of source' of funds of the assessee but the 'source of source' of funds of the shareholder, M/s Hari TrafinPvt Ltd viz., the source of funds in the hands of M/s Godavari VincomPvt Ltd, which had repaid back the loan taken from M/s Hari TrafinPvt Ltd, which in turn, was paid to the assessee by way of share capital/share application monies. We do countenance this action of AO for the reason that the assess....
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....enuineness of the share application monies received from M/s. Hari Trafin Pvt Ltd in AY 2013-14 and thereby himself disregarded this cash trail in the facts of the present case. With regard to the balance trail of Rs.105 lacs viz., Rs.80 lacs & Rs.25 lacs received by the assessee from M/s Hari TrafinPvt Ltd on 26.09.2010 and 16.11.2010, perusal of the flow chart, shows that the AO himself had traced the source of the monies credited to the assessee's account. The AO was not only able to identify the names of the payer companies but was also able to identify and establish the bank accounts of the source as well as source of source from which payments were received by the assessee. Both the source as well as the source of source is noted to be within the banking system only and there is no cash deposit found. It is true that there were cash deposits at the end of the 5th or 6th layer of the transaction, but we find merit in the Ld. AR, Shri Dudhwewala's contention that there was no evidence or material or nexus whatsoever brought on record by the AO to show that the cash deposits made in the accounts of the proprietary concerns represented unaccounted monies provided by the assessee.....
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....s, it is noted that the shareholder had furnished the bank statement for the relevant period, which is found placed at Page 613-619 of the Paper book. On examination of the same, it is taken note that there is no deposit of cash and all transfer have been made through proper banking channels. The details of source of source of funds received by the assessee were provided by the shareholder, in the manner as requisitioned in the notice u/s 133(6) of the Act viz., name, PAN & address of the payer i.e. the share applicant/lender/ borrower who had paid the sum, along with the specified dates of receipt and the corresponding bank statements evidencing bank account details of the said payers, which is available at Page 611-612 of the Paper book. We thus find merit in the contention of the Ld. AR that, when all the details regarding source of source of funds, in the manner as desired by the AO, had been provided by the shareholder, then the AO's allegation that the genuineness of the source of source of funds was not established, was unjustified. It is noted that the source of funds of the shareholder was primarily refund of loans advanced earlier and/or sale of investment holdings, detai....
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....reholder stands explained. From the audited financial statements, which is available at Pages 667 to 676 of the paperbook, it is noted that the company was having sufficient own funds in the form of capital and free reserves to the tune of Rs.14, 19, 91, 122/- which corroborates with the investment made by the shareholder. The MCA Master Data of the company is also available on record from which it is evident that the company is 'Active' till date. (ii) As regards the source of source of funds, Sri Dudhwewala pointed out that not only the AO's averment disputing its genuineness viz., by stating that, sale proceeds of shares were not established, was factually erroneous but accordingly to him, the same was a sweeping remark in as much as AO did not point out the specific instance/item whose genuineness was not established. It is noted that the company had placed on record the copy of the bank statement for the relevant period at Page 651 to 666 of the Paper book. On examination of the bank statement it is taken note that there is no deposit of cash and all transfer have been made through proper banking channels. The shareholder, also provided the details of source of source....
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....on of AO thus cannot be countenanced being irrational. So, we are of the view that assessee has discharged its primary burden to establish the nature and source of source of credit and there being no evidence or material to rebut the same in the hands of AO, we are inclined to accept the identity, creditworthiness and genuineness of the share transaction. (D) Prefer Infrastructure Pvt. Ltd. (AY 2013-14& 2014-15 - Rs.6, 12, 00, 000/&Rs.6, 38, 50, 000/-) (i) We find from pages 682-709 of the paper book, the details of M/s. Prefer Infrastructure Pvt. Ltd. are set out. From the reply furnished by this shareholder in response to the notice of AO u/s 133(6) of the Act, it is noted that this shareholder is a private limited company having PAN AAECP2657B and CIN: U45400WB2007PTC115882, which regularly files its return of income.The shareholding pattern of the company shows that it belonged to one of the promoter group i.e. More Group of the assessee. The director of the shareholder is also the promoter-director of the assessee. Hence, the rationale behind making of investment made by this shareholder cannot be doubted. From the audited financial statements, which is....
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....he shareholding pattern of the company shows that it belonged to one of the promoter group i.e. More Group of the assessee. The director of the shareholder is also the promoter-director of the assessee. Hence, the rationale behind making of investment made by this shareholder need not be doubted. From the audited financial statements, which is found placed at Pages 724 to 733 of the paperbook, it is noted that the company was having sufficient own funds in the form of capital and free reserves to the tune of Rs.1420.83 lacs which corroborates with the investment made by the shareholder. The MCA Master Data of the company, which is also available on record from which it is evident that the company is 'Active' till date. As regards the source of source of funds, it is noted that the company had placed on record the copy of the bank statement for the relevant period at Page 718 to 723 of the Paper book. On examination of the bank statement it is taken note that there is no deposit of cash and all transfer have been made through proper banking channels. The shareholder, also provided the details of source of source of funds in the exact manner as sought for in the notice of AO u/s 133(....
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....s of M/s. Transparent Tie Up Pvt. Ltd. are set out. Perusal of the reply furnished by this shareholder in response to the notice of the AO u/s 133(6) of the Act, shows that this shareholder is a private limited company having PAN AACCT7185L and CIN: U52100WB2007PTC116798, which regularly filed its return of income and is assessed under the jurisdiction of ITO, Ward 9(1), Kolkata. The shareholding pattern of the company shows that it belonged to one of the promoter group i.e. More Group of the assessee. Hence, the rationale behind making of investment made by this shareholder need not be doubted. From the audited financial statements, which is found placed at Pages 724 to 733 of the paperbook, it is noted that the company was having sufficient own funds in the form of capital and free reserves to the tune of Rs.1807 lacs which corroborates with the investment made by the shareholder. The MCA Master Data of the company is also available on record from which it is evident that the company is 'Active' till date. As regards the source of source of funds, it is noted that the company had placed on record the copy of the bank statement for the relevant period at Page 756 to 758 of the Pap....
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....ssessee to prove the identity creditworthiness and genuineness of the share transaction. So, in the absence of any material to the contrary applying the principle of preponderance of probability the assessee's claim needs to be accepted. (H) Bonus Dealers Pvt. Ltd. (AY 2015-16 - Rs.1, 30, 00, 000/-) (i) It is noted that during AY 2015-16, the assessee had received share application monies of Rs.3, 02, 00, 000/- from M/s Bonus Dealers Pvt Ltd. qua the application monies aggregating to Rs.1, 72, 00, 000/-, and the AO has accepted the identity, creditworthiness & genuineness of the transaction but chose to dispute sum to the extent of only Rs.1, 30, 00, 000/-. It is noted that similar documentation in as much as even the explanation regarding source of source of funds for the entire sum of Rs.3, 02, 00, 000/- was furnished by the shareholder in the same manner as sought for by the AO under the cover of the same letter furnished in response to the AO's notice u/s 133(6) of the Act. When this is the position, we wonder as to how the AO could believe part of the share transaction and disbelieve other part. We find that AO has not adduced any material to justify such a s....
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....the shareholder had provided complete details along with name, PAN & address of the payer. We thus find that even the source of source of funds stood explained. (iii). It is also noted that shareholder was subjected to income-tax scrutiny u/s 143(3) of the Act in 2017-18, a copy of the assessment order is found placed at Pages 951 to 956 of the Paper book. This proves the genuine and bona fide existence of the shareholder and also establishes the veracity of the investments held by it in the assessee company. (iv). Shri Dudhewewalapointed out that M/s Bonus DealersPvt Ltd was an associate concern and that the director of the said shareholder company and the assessee were common. He invited our attention to the details of the directors of the shareholder, which is available at Page 966 of the paper book, from which it is noted that Shri Vishal Jain, who is also the director of the assessee. Perusal of the statement of Shri Vishal Jain, which was recorded under oath by the AO on 28-11-2019, shows that the director had also affirmed the transactions between M/s Bonus DealersPvt Ltd and the assessee and nothing adverse came out from his statement. And the AO could not....
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.... at Pages 1074-1080 of the paperbook. (ii) In the relevant FY 2016-17, M/s Orchid Finlease Pvt. Ltd. did not pay any fresh sum to the assessee company. From the documents available on record, it is noted that the assessee vide Board Resolution dated 04-05-2016 had exercised their right available under the loan agreement to convert the unsecured loan into equity shares. Having regard to the fair market value of the shares determined in accordance with Rule 11UA, the company allotted 4, 04, 761 equity shares at Rs.63 per share to this shareholder. Copy of the allotment letters issued by the assessee are found placed at Pages 1063 & 1064 of the Paperbook. Having regard to these facts, we therefore note that there was no fresh credit received by the assessee in the relevant AY 2017-18 from M/s Orchid Finlease Pvt. Ltd. It was a case where the unsecured loan has been converted into equity capital by way of journal entry.In absence of there being any fresh credit received during the relevant year, the provisions of Section 68 of the Act could not have been invoked or applied in AY 2017-18. For this, we find support in the decisions of the Hon'ble Calcutta High Court in the case ....
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.... 1145-1266 of the paper book, the details of M/s. Shantidham Marketing Pvt. Ltd. are set out. It is observed that the AO had issued notice u/s 133(6) dated 27.11.2019 upon this shareholder requisitioning several details and inter alia requiring it to substantiate its source of funds out of which it paid the share application monies to the assessee. Perusal of their response reveals that the shareholder belongs to the UFM Group of companies (promoter of the assessee) and is engaged in the business of promoting and marketing of cement and trading of poly weave bags. The shareholder is a GST registered entity having PAN AAOCS2874F and CIN: U51909AS2010PTC012266, which regularly filed its return of income and is assessed under the jurisdiction of ITO, Ward 2(1), Kolkata. The shareholder had explained the strategic business objective behind infusion of share capital into the assessee company, for the reason that it was in the last leg of completion and commissioning of its cement plant. It is noted that the investment was made at the fair market value computed in terms of Rule 11UA of the Rules. Copy of the valuation report is found placed at Pages 1255 to 1264 of the paperbook. T....
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.... Act, which is found placed at Page 1157 to 1160 & 1245 to 1254 of the Paper book. It is noted that the source of funds of the shareholder was primarily deposits from channel partners and/or sale of investment holdings, details of which along with name, PAN & address are found placed at Pages 1245 to 1254 of the paperbook. (iv) Shri Dudhewewala pointed out that M/s Shantidham MarketingPvt Ltd was an associate concern and that the director of the said shareholder company and the assessee were common. He invited our attention to the details of the directors of the shareholder, which is available at Page 1155 of the paper book, from which it is noted that Shri Vishal Jain, who is also the director of the assessee. Perusal of the statement of Shri Vishal Jain, which was recorded under oath by the AO on 28-11-2019, shows that the director had also affirmed the transactions between M/s Shantidham MarketingPvt Ltd and the assessee and nothing adverse came out from his statement. When enquired about the source of funds of the shareholders, the Director stated that the shareholder was engaged in the business of marketing of clinkers and cement in North Bengal, Bhutan and Nepal and ....
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....hare. The AO made the addition of Rs. 17.60 crores after carrying out various inquiries as under- (i) To verify the veracity of the transactions, the notices were served on three investorcompanies namely Clifton Securities Pvt. Ltd.-Mumbai, Lexus Infotech Ltd.-Mumbai, Nicco Securities Pvt. Ltd. Mumbai but no reply was received. (ii) The address with respect to a company namely Real Gold Trading Co. Pvt. Ltd.Mumbai was not correct. (iii) The notice could not be served on two investor-companies, namely Hema Trading Co. Pvt. Ltd.-Mumbai, Eternity Multi Trade Pvt. Ltd.-Mumbai. (iv) Submissions from nine companies were received (Neha Cassetes Pvt. Ltd.-Kolkata, Warner Multimedia Ltd. Kolkata, Gopikar Supply Pvt. Ltd. Kolkata, Gromore Fund Management Ltd. Kolkata, Bayanwala Brothers Pvt. Ltd. Kolkata, Shivlaxmi Export Ltd. Kolkata, NatrajVinimay Pvt. Ltd. Kolkata, Neelkanth Commodities Pvt. Ltd. Kolkata, Prominent Vyappar Pvt. Ltd. Kolkata), however, they had not given any reasons for paying such a huge premium. (v)The details of share purchased and the amount of premium were not specified by certain companies, namely Super Finance Ltd. Kolkat....
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....ich shows that the all investees are family-held group entities, share premium charged is support by valuation reports, adequate creditworthiness on the basis of assets, income streams etc. along with source of source of the funds for investment have also been substantiated, etc., therefore, the ratio laid down in the decision in NRA Iron & Steel (P.) Ltd. (supra) cannot be applied in the facts of the present appeal. 11.17 In this regard, we draw support and guidance form the judgment of Hon'ble Bombay High Court in case of Pr. CIT v. Ami Industries (India) (P.) Ltd. (424 ITR 219) where it was held as under: "17. In so far order passed by the Assessing Officer is concerned, he came to the conclusion that the three companies who provided share application money to the assessee were mere entities on paper without proper addresses. The three companies had no funds of their own and that the companies had not responded to the letters written to them which could have established their credit worthiness. In that view of the matter, Assessing Officer took the view that funds aggregating Rs. 34 Crores introduced in the return of income in the garb of share application money ....
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.... returns of income and therefore, doubted credit worthiness of the three creditors. Finally, Tribunal held as under:- "5.7 As per the provisions of Section 68 of the Act, for any cash credit appearing in the books of assessee, the assessee is required to prove the following- (a) Identity of the creditor (b)Genuineness of the transaction (c)Credit-worthiness of the party (i) In this case, the assessee has already proved the identity of the share applicant by furnishing their PAN, copy of IT return filed for asst. year 2010-11. (ii) Regarding the genuineness of the transaction, assessee has already filed the copy of the bank account of these three share applicants from which the share application money was paid and the copy of account of the assessee in which the said amount was deposited, which was received by RTGS. (iii) Regarding credit-worthiness of the party, it has been proved from the bank account of these three companies that they had the funds to make payment for share application money and copy of resolution passed in the meeting of their Board of Directors. (iv) Regarding source of the source, Assessin....
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....inding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below. 24. Under these circumstances, we find no error or infirmity in the view taken by the Tribunal. No question of law, much less any substantial question of law, arises from the order of the Tribunal. Consequently, the appeal is dismissed. However, there shall be no order as to cost." 11.18 We find similar facts and circumstances were involved before the Kolkata Bench of this Tribunal in the case of Baba Bhootnath Trade & Commerce Ltd in ITA No. 1914/Kol/2017 dated 1st April 2019. In the decided case the assessee had raised share subscription monies of Rs.2.04 crores. Complete details were furnished in the course of assessment. Notices u/s 133(6) & 131 of the Act were also complied with by the respective shareholders. The AO, however, in disregard of these materials, assessed the entire sum of Rs.2.04 crores by way of unexplained cash credit on the premise that the companies did not have any creditworthiness or business ration....
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..../Kol/2017 which involved somewhat similar facts as involved in the present case. "5. Learned departmental representative at this stage quoted hon'ble apex court's decision in PCIT vs. NRA Iron & Steel Pvt. Ltd. in Civil Appeal No. 2463 of 2019 dated 05.03.2019 restoring such unexplained cash credits addition in the nature of the share capital / premium invoking accommodation entry providers. We note that their lordships had come across an instance of the concerned assessee having failed to satisfy the above stated three parameters (supra) whereas the facts in the instant case sufficiently reveal that this taxpayer had duly discharged its onus and also responded to section 131 summons. We therefore reject the Revenue's arguments supporting lower authorities' action and delete the impugned un-explained cash credits addition of 2, 01, 50, 000/-. The assessee succeeds in its sole substantive grievance." 11.20 For the reasons as aforesaid and on the given facts of the case, we thus hold that the assessee had discharged the burden casted upon it under Section 68 of the Act and it had also substantiated the source of source of funds of the share application rec....
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....ven by AO for his action of finding fault with/cherry picking of some share holders on the strength of same statement. Moreover, in the answer given by Shri Agarwal in the statement dated 06-05-2018, he names Mayur Ply Group to be the beneficiary of the accommodation entries and not the assessee. Accordingly, for the reasons aforesaid, this statement of Shri Agarwal does not inspire confidence to take a view against the shareholders company in the light of the documentary evidence and for the reasons stated infra. 11.23 Coming to the selective extracts of the statement dated 13-12-2017, it is noted that the AO himself has observed that Mr. Agarwal in this statement had stated on oath that Gangwal Group had made investments through his entities and not the assessee. Further, in this statement, Shri Agarwal allegedly names two (2) shareholders of the assessee company viz., M/s DhawanVinimayPvt Ltd, in which he himself was a Director, and M/s Transparent Tie Up Pvt Ltd in which Mr. Ritesh More was a Director. It is surprising to note that, having regard to this averment, the AO accepted M/s DhawanVinimayPvt Ltd, to be a genuine body corporate and did not make any addition in relati....
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.... of natural justice are implemented by granting opportunity of examining/furnishing, the adverse material/evidence gathered by him to the affected party and facilitate an opportunity to cross examine the maker of the adverse oral testimony. Unless the oral evidence is tested on the touch-stone of crossexamination, the veracity of the evidence cannot be believed and it cannot be acted upon to the disadvantage of assessee. Failure of AO to give opportunity to the assessee to cross examine renders his reliance on the statement of Shri Aggarwal a nullity, as held by Hon'ble Supreme Court in Andaman Timber (supra). We thus note that before passing the assessment order, the AO failed to perform his twin duties, that of the investigator and adjudicator, resulting in the addition/s being vitiated in law. 11.26 We may in this regard, gainfully refer to the decision of Hon'ble Apex Court in the case of CIT Vs Odeon Builders Pvt Ltd reported in 418 ITR 315 involving similar facts as involved in the present case. In the decided case, the Revenue had disallowed the purchases made by the assessee holding it to be bogus based on statement given by a third party. On appeal, the Ld. CIT(A) noted....
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....n to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT." 11.27 It is by now a settled proposition of law that where in the revenue proceedings any inference is drawn against the assessee on the basis of statements of any third person then such inference is legally unsustainable if opportunity of cross examining the Departmental Witness is not granted to the affected person. In this regard, we may make useful reference to the decision of the Hon'ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd (102 taxmann.com 372). In this case the assessee had claimed deduction for consultancy charges paid to one S, a Consultant. On the basis of statement recorded from S. in the course of search conducted u/s 132, the AO held that S did not render any service to the assessee and therefore the deduction claimed for consultancy charges paid was not allowable. The Tribunal held that the disallowance; based solely relying on the statement of S, recorded in the course of search without there being any independent material; was not justified. On appeal by the revenue the Hon'ble Bombay High Court ....
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....to make the additions. No question of law arises." 11.28 Similar view was expressed by the Hon'ble Gujarat High Court in the case of CIT Vs Kanti Bhai Ravidas Patel (42 taxmann.com 128), wherein it was observed as follows: "5. We have heard rival contentions and gone through the material on record. Ld. A.O. has used third party statement of Vikas A. Shah in framing the assessment. The statement of Shri Vikas A. Shah recorded under Section 131(1A) not under Section 132 of the IT Act on 14/03/2005 and 19/04/2005. The ld. A.O. had used this statement without allowing cross examination of Vikas A. Shah which is against the principle of natural justice. This land had registered document and the value has been accepted as to correct by registering authority to the charge of stamp duty. There was no material or evidence that any on money was paid by the appellant on the transaction. Ld. A.O. had not referred this land to the DVO for determining the market value on date of registration. The statement given by Vikas A. Shah was self service statement without any supporting evidence. There was no search carried out on the appellant. The seized papers were found in the possession ....
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....er Sharma deserves deletion. 3. The assessee as alleged carried out construction activities and disclosed income from subcontract and investment in building construction. After the search U/s 132 of the Act, 1961 was carried out on 12.04.2005 in the case of another assessee M/s. B.C. Purohit& Company at Jaipur & Kolkata, evidence was gathered and from the investigation it revealed that in the garb of tax consultation the owners and employees of this group were running the racket of providing accommodation entries of gifts, loans, share application money, share investment and long term capital gains in shares. It will be relevant to record that the present assessee might have been in consultation with M/s. B.C. Purohit& Company and a member of the group and has drawn inference regarding providing accommodation entries and the assessing officer was of the view that details made available by the assessee as regards unsecured loans and share application money, reference of which has been made in para-4 of its order, appears to be the accommodation entries and the present assessee was middle man and invoking Sec.68 of the Act, it was considered to be part of the income in the h....
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.... filed by the assessee dismissed the appeal preferred by the revenue under order impugned. 4. We have heard the parties at length and of the view that what has been observed by the Commissioner (Appeals) & the Tribunal appears to be based on factual matrix and there appears no substantial question of law arises which may require interference by this Court to be examined in the instant appeal. 5. Consequently, the instant appeals are wholly devoid of merit and accordingly stand dismissed." 11.30 In view of the above judicial precedents (supra), we are of the considered view that the AO's failure to personally examine the witness and his denial to allow the assessee opportunity to cross examine the Departmental witness on whose statements he was relying upon was a serious & fundamental flaw which resulted in the additions made u/s 68 of the Act to be a nullity as held by the Hon'ble Supreme Court in Andaman Timber (supra). 11.31 For the elaborate reasons as discussed in the foregoing, we therefore hold that the all additions made u/s 68 of the Act in AYs 2011-12 to 2015-16 & 2017-18 were untenable both on facts as well as in law and was therefore rightly delet....
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..... from the date on which the time limit for filing of return of income in response to notices u/s 153A of the Act dated 11.09.2019 had expired. This ground therefore stands allowed for statistical purposes 13. Question (F) i.e. Ground No. 2 of the assessee's Cross Objection for AY 2017-18 was not pressed at the time of hearing and therefore the same is hereby dismissed. 14. Having regard to our above findings deleting the addition of Rs.34, 69, 54, 848/- made u/s 68 of the Act in AY 2017-18, Questions (G) & (H) i.e. Ground Nos. 3 & 4 of assessee's Cross Objection for AY 2017-18 has become academic in nature and is therefore dismissed as infructuous. 15. Question (H) i.e. Ground No. 6 of the Cross Objections relates to adjustment of seized cash of Rs.61, 73, 000/- by way of self-assessment tax in the hands of the assessee in AY 2017-18. The Ld. AR Shri Dudhwewala brought to our notice that the assessee had filed a petition dated 28-02-2020 before the AO requesting him to adjust this seized cash of Rs.61, 73, 000/- against their tax liability for AY 2017-18. Having regard to the provisions of Section 132B(iii) of the Act, the AO is accordingly directed to grant the credit of....